Business Studies · May / June 2020 · Paper 11 · Question 3
0450
As printed in the paper
The question as text
NWA is a large and profitable airline business. It has grown quickly over the past 10 years and new aeroplanes have helped to improve its brand image. NWA offers low priced flights for tourists to 3 50 countries. Sales promotion is an important part of NWA’s marketing mix. The Finance Director is worried that NWA has a high level of debt as its main source of finance is bank loans. The organisational chart of NWA has many levels of hierarchy with narrow spans of control. Table 3.1 Cost and price data for a typical NWA flight (2019) $40 Price per customer $2000 Fixed costs $24 Variable cost per customer 200 Maximum number of customers
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Show the answer and mark scheme
3(a)[2]
Define ‘brand image’. Award 2 marks for a full definition. Award 1 mark for a partial definition. Unique name of a product that distinguishes it from other products or brands [2]
Partial definition e.g. something that makes the product easy to recognise [1]
2
3(b)[2]
Calculate the break-even number of customers for a typical NWA flight. Show your working. Award 2 marks for correct calculation. Break-even: 125 [2]
Correct formula and incorrect answer e.g. 2000 / (40 – 24) [1]
OR fixed cost/selling price – variable cost per unit [1]
2
3(c)[4]
Outline two possible problems for NWA of having a high level of debt. Award 1 mark for each relevant problem. Award 1 mark for each relevant reference to this business. Points might include:
Difficult to arrange additional finance [k] especially as its main source of finance are bank loans [app]High cost of repayment/high expenses [k] making it difficult to keep prices at $40 [app]Increase financial risk [k] when buying planes [app]Cash flow/liquidity problems [k] despite business being profitable [app] Other appropriate responses should also be credited.3(d)[6]
Explain how two methods of sales promotion could increase sales for NWA.
Award 1 mark for identification of each relevant method (max 2).
Award 1 mark for each relevant reference made to this business (max 2). Award 1 mark for each relevant explanation (max 2).
Points might include:
Sponsorship (of events or clubs) [k] can help boost its reputation [an] thereby helping further improve its brand image [app]Short-term price discounts/special offers [k] aimed at tourists [app] as more people are able to afford/willing to buy as its cheaper [an]Loyalty schemes [k] such as frequent flying programme [app] to encourage customers to return many times [an]Competitions [k] as people may buy more to increase their chances of winning the prize [an]Gifts [k]After sales service [k]Other appropriate responses should also be credited.
3(e)[6]
Do you think that having many levels of hierarchy is the best type of organisational structure for a large business? Justify your answer. Award up to 2 marks for identification of relevant issues. Award up to 2 marks for relevant development of points.
Award 2 marks for justified decision as to whether having many levels of hierarchy is the best type of organisational structure for a large business. Points might include:
Having levels of hierarchy (tall hierarchy) means a long chain of command [k] which can slow down communication as messages have to pass through many levels to reach the intended person [an] which could slow down decision making [an]Senior managers are more remote from employees [k] which can demotivate employees and lower efficiency/output [an]Managers have fewer employees to supervise [k] which could result in fewer opportunities for delegation [an]Can provide more opportunities for promotion [k]Having a wider structure would lead to a short chain of command/each manager having to be responsible for more people [k] which could mean managers lose control [an]Justification might include:
No as it could depend on the leadership style of the manager – if they have an autocratic style – a tall structure may be better as this will allow them to have greater control over what all the employees in a large organisation do [eval] [eval]Other appropriate responses should also be credited.
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